Section 115BBD vs Section 115O- Impact of Interim
Finance Act 2014.
1.
U/s 115BBD Parent Domestic Company is required
to pay tax of 15% on dividend income received from foreign subsidiary, provided
dividend is received in FY 13-14. The said dividend is taxable on Gross basis,
without allowing any deduction for expenses.
2.
The said benefit has not been extended in
interim Finance Act, 2014 , as a result dividend received from foreign
subsidiary in FY 14-15 will be
chargeable to tax @ 30% on net basis.
3.
Section 115O, provides that in computing the
Dividend Distribution Tax (DDT) on dividend declared by Domestic company, the
following amount shall be deducted from said dividend:-
a)
Amount of dividend received from domestic subsidiary
company, on which subsidiary company has paid DDT.
b)
Amount of dividend received from Foreign
subsidiary company, on which recipient company has paid tax u/s 115BBD
4.
Section 115BBD will become non-operational w.e.f
1/4/2014. Now question for consideration is
·
Whether
parent company which will received dividend from foreign subsidiary in FY 14-15, on which
parent co will pay tax @ 30%, can claim deduction of such dividend while
calculating DDT on dividend which will be declared by it (Parent)
5.
On plain reading of section 115O, it appears
that benefit of reduction of dividend received from Foreign subsidiary will not
be available to parent company from 1/4/2014.
6.
On logical reasoning and intention behind the
beneficial provision of section 115O, one can claim the benefit of deduction of
dividend from foreign subsidiary on following grounds:-
a)
Domestic subsidiary is required to pay 15% DDT
on dividend declared by it. Parent company is entitled to reduce the said
dividend while calculating DDT on dividend declared by it.
b)
Present section 115BBD requires parent company
to pay 15% tax on dividend from foreign subsidiary, before parent company can
claim the deduction of said dividend
while calculating the dividend declared by it
c)
Now on section 155BBD becoming non-operational
from 1/4/2014, Parent company will be required to pay 30% tax on dividend
received from foreign subsidiary. When present law is allowing benefit u/s 115O
on payment if 15% tax on foreign dividend,
the said benefit should be continue on payment of tax of 30% on foreign dividend.
7.
However if reasoning given at point 6 above is
accepted, there will be practical difficulties in implementing section 115O,
explained as under:-
a)
U/s 115BBD, tax on dividend is required to be
paid @ 15% on gross basis without allowing any deduction for expenses
b)
In the absence of section 115BBD, tax on
dividend will be paid @ 30%, net of expenses
c)
Considered a case, where parent company incurred
expense of Rs. 50,000 in earning dividend of Rs. 60,000 from subsidiary
company.
d)
Parent company will pay tax of 30% of net
dividend of Rs. 10,000 (60,000-50,000)
e)
Question for consideration is how amount of such
dividend shall be deducted by parent company while calculating DDT on dividend
declared by it i.e Rs. 60,000 or Rs. 10,000
Hope that Final Finance Act, 2014 will definitely throw clarity on
these aspects
